Evaluating upcoming ICOs is a tricky business. Many don’t understand what an initial coin offering is, including people who actually invest in them. In order to be able to make educated investments into ICOs, you must understand how to evaluate ICOs to see if it will appreciate in value. Before explaining how to evaluate an ICO, let’s start by defining what an ICO is.

What Is An ICO?

An initial coin offering is a method of raising funds for a new cryptocurrency venture, typically the introduction of a new cryptocurrency token. This is not a regulated method of generating funds, so there is no government officials determining if these ventures are legitimate or scams. This offering can be used by startups to skip the rigorous and controlled capital-raising procedure demanded by venture capitalists or banks.

ICO Evaluation Process

There are many factors that go into researching and evaluating an ICO. There will be a ton of upcoming ICOs in 2018, so it is crucial you understand how to evaluate a project so you do not lose money. You have to make sure you know exactly what you are investing in, and what will happen to your money. You need to be thorough. When making a decision like this, it is best to study all the information at hand for at least a week. Your thinking and perspective will change and evolve day by day. Don’t jump the gun and go all in on an ICO right after you read an article promoting it. Here are 7 things you must do before investing in any ICO:

1. Read The Whitepaper

No one wants to take the time to sit down and read a 100 page whitepaper. However, this is the only place where every detail about a project is disclosed. The white paper is where the real red flags are found. Just taking the time to read the whitepaper will give you a huge advantage over investors. Most investors don’t take the time to read the whitepaper, and just follow other people’s opinions blindly. If you want to become a serious and successful cryptocurrency investor who thinks for them-self, you have to take the time to do this. We recommend reading the white paper more than once to really get the gist of the project.

2. Know The Team Behind the Project

The team behind an ICO’s project is crucial. You should study the background of all the individuals on the team. Quick Google searches of all the names of the team members should tell you all you need to know. You should make sure all the members have relevant experience in the field of the ICO. If the founders and main project managers do not have much background in the field, that is a red flag. If any of the members have a criminal background, that is even bigger of a red flag. Learn as much as you can about the people you would be giving your hard earned money to.

3. Research Other Investors

See who else is investing in the project. Also see WHY they are investing in the project. ICO’s will often make claims about celebrities investing in their token. Always verify if these claims are true, and make sure they are not false claims to establish fake credibility. If the ICO is legitimate, it is useful to study other investors opinion on the token. They bring up a benefit you may have overlooked. Or they might bring up a red flag that you didn’t notice. Don’t follow others opinions blindly, but take into consideration their perspectives when forming your own opinion on a project.

4. Study Their Community

The community of a token says a lot about the project. Most of the best projects have a large open community where investors can share their thoughts and ideas. Many projects will have Telegram and Slack communities. You should join their communities to get a feel for the type of people who are investing in the project. The community will tell you a lot about the legitimacy of a project.

5. Look At Their Marketing Tactics

How an ICO is marketed tells you a TON about its legitimacy. The best projects do not direct message random people on Instagram asking for BTC donations. Legitimate projects market their coin in a professional manner, and have a method of verifying investors in the project, and have a secure system of taking payments. People direct messaging you on social media will likely just take your crypto donations and run with it. If any project promises you guaranteed returns that is a HUGE red flag. There is no such thing as an investment with guaranteed returns. That is just a tactic to manipulate uneducated investors.

6. Token Utility

You need to understand exactly what the token you are investing will be used for. The token you are investing in needs to fulfill a unique niche in a market that no other cryptocurrency can. A good question to ask when considering a token’s utility: Why can this token, and their blockchians, solve the problem this project is looking to resolve?

7. Evaluate Token Distribution

Pay very close attention to how the tokens are being distributed among the insiders. A high token distribution among the team members is a red flag. If more than 50% of the tokens from the ICO are going to insiders, they are likely just in it for the money. You want to be invested in projects where most of the tokens in circulation are available for public purchase. A common trait of pump and dump ICO scams is a high percentage of tokens being owned by insiders. This is crucial detail you always know for all the upcoming ICOs you are looking to invest in this year.

Aside from these 7 tips, make sure to do extensive research and never put all your money into one ICO opportunity.

Kunal Desai is an American day trader (stocks and cryptos) and founder of Bulls on Wall Street and Bulls on Crypto Street, two online trading academies and informational publications. He has been featured in many high profile publications like Inc, Forbes, Buzzfeed, and Fortune. He has spoke at trading and business events all across the World.